Roux, A. and Zastawniak, T. (2006) A counter-example to an option pricing formula under transaction costs. Finance and Stochastics, 10 (4). pp. 575-578. ISSN 1432-1122
In the paper by Melnikov and Petrachenko (Finance Stoch. 9: 141–149, 2005), a procedure is put forward for pricing and replicating an arbitrary European contingent claim in the binomial model with bid-ask spreads. We present a counter-example to show that the option pricing formula stated in that paper can in fact lead to arbitrage. This is related to the fact that under transaction costs a superreplicating strategy may be less expensive to set up than a strictly replicating one.
|Institution:||The University of York|
|Academic Units:||The University of York > Mathematics (York)|
|Depositing User:||York RAE Import|
|Date Deposited:||27 May 2009 09:53|
|Last Modified:||27 May 2009 09:53|
|Publisher:||Springer Verlag (Germany)|